Colombo Dockyard deep in red as multiple crises bite

• Management confident of a turnaround as company looks past worst challenges 

Colombo Dockyard PLC (CDPLC) reported a massive loss for the three months to September 2023 as the shipbuilding and repairing company had to endure repeated crises in the last three years from the pandemic to the economic crisis at home.

The company said it was pummeled by a slew of challenges from the global supply chain disruptions which resulted in soaring costs during and the aftermath of the pandemic to the shortage of foreign currency and the loss of key talent caused by the economic crisis last year. These issues, the management said, caused delays in the deliveries of vessels to their customers and forced them to pay liquidated damages as well as to cancel two shipbuilding contracts after paying compensation. 

“At the peak of the crisis, the very survival of Colombo Dockyards was uncertain as the company had to overcome a series of critical crises, each of which could have had a fatal impact on the company,” the company said in an earnings release. 

The company reported revenues of Rs.7.92 billion for the July – September period, its third fiscal quarter, down 2.81 percent from a year ago.

 Reflecting how profound the impact coming from these headwinds, the company swung to a loss of Rs.2.67 billion at the gross profit level from a profit of Rs.561.56 million in the same period last year.
The company reported negative earnings of Rs.6.72 billion for the three months compared to a profit of Rs. 86.28 million a year ago. For the nine months, the company reported a net loss of Rs.9.79 billion compared to a profit of Rs.388.57 million. 

Both quarterly and nine-month earnings were after a revaluation gain of Rs. 8.7 billion without which the company’s book value would have turned negative by the end of September. 

The country’s sovereign default last year caused many problems for the company which deals predominantly with the foreign clients as they were unwilling to accept bank guarantees from the Sri Lankan banks. 
This had forced the company to obtain bank guarantees from international banks after keeping 100 percent deposits with them. 

At the same time, the company was also forced to borrow to build the vessels. 
“At the peak of this crisis CDPLC had to deposit over Euro 45 million in international banks earning almost 0 percent interest, while was forced to borrow in Sri Lanka for rates as high as 29 percent for LKR borrowings and 12 percent for US$ borrowings per annum. This was due to the disparity of national interest rates between countries at the time,” the company said. 

As a result the company incurred a net interest cost of Rs.2.67 billion for the nine months including Rs.821 million which the company charged to cost of sales to reflect the unusually high interest rates. 
The rapid fluctuations in the exchange rates also caused the company to lose Rs.1.45 billion for the nine months as a result of the appreciation in the rupee this year after its free fall last year.

The company back in 2020 quoted very thin margins to enter into new markets in the European region aiming for high-end and modern vessels such as cable laying and repairing vessels and hybrid bulk carriers, diversifying from its existing Asian market with vessels of limited complexity.

While this was considered the sensible thing to do at the time as part of its long-term strategy and financial capabilities, and the company in fact managed to deliver part of the vessels it undertook to build for its new European clients, it appears that the thin margins the company kept have been wiped off due to the multiple head winds it had to confront since then. 

Now the company is taking somewhat a sanguine view of the future as the country is also looking past the worst of the crisis it went through, the management remains confident that they could deliver significant improvement in the performance in the future. 

“Further, the ship repair business is expected to provide a steady cash inflow, and the management hopes to grow this line of business in the immediate future,” the company said.  “On the shipbuilding side, the company continues to build hybrid bulk carrier vessels while aiming for new European business at higher price points, leveraging the reputation built up in these markets,” it added. 

Japan’s Onomichi Dockyard Company Limited holds 51 percent of Colombo Dockyard and the Employees’ Provident Fund has 16.343 percent stake being its second largest shareholder.